By Agency Reporter

BOSTON: The third decline in United States home prices in three years is driving a pickup in sales as bargain hunters rush to buy before mortgage rates rise, even as values may slump further.

Mounting foreclosures pushed the median price for a US existing home to $158,800 in January, the lowest level since 2002, according to the National Association of Realtors.

At the same time, sales climbed 22 per cent from October, the biggest three-month gain since the end of a homebuyer tax credit, a report from Reuters on Tuesday showed.

The rally began as mortgage rates started to rise from record lows in November and the economic expansion picked up speed.

“The job market is beginning to gain traction, consumer confidence is improving, and even though mortgage rates have increased, they’re near historic lows,” Mark Zandi, chief economist of Moody’s Analytics Incorporated in West Chester, Pennsylvania, said, adding that, “Prices may go down a bit more, but we’re still seeing a pop in sales.”

Fannie Mae, the largest mortgage-finance company, forecasts home prices will fall further this year and sales will jump. Discounts on foreclosed properties are eroding the values of other homes, making houses more affordable and opening the market to more people.

A sustained increase in sales may signal a bottom in values as prices fall to levels buyers cannot resist.

The average rate for a 30-year fixed mortgage was 4.87 per cent last week, almost three-quarters of a percentage point above the record 4.17 per cent in mid-November, based on data from McLean, Virginia-based Freddie Mac, the number two mortgage- finance company.

It may be close to six per cent by the end of the year, according to a forecast by the Mortgage Bankers Association in Washington.

“If we can strike a deal before rates go any higher, we can get a lot more house for our money,” said Matt Arnold, who is shopping for a four-bedroom home in Carlisle, Pennsylvania, with his wife, Jillian. “Even if prices drop some more, it’s still a good time to buy.”

A revival in transactions may be limited in the short term as buyers wait for the traditional spring selling season and as rising energy prices damp demand, said Thomas Lawler, a former Fannie Mae economist who is now a Virginia-based housing consultant. Oil has climbed to a 29-month high following political turmoil in the Middle East and North Africa.

An index of pending home sales fell by 2.8 per cent in January, according to the Realtors group. It is 17 per cent above a record low in June.

“Typically, when there’s been a spike in gasoline and oil prices of this magnitude over a very short period of time, confidence goes down for a short period,” Lawler said. He estimates a home-sales rebound in the second quarter.

Prices are falling again after seesawing in 2009 and 2010 because of the federal tax incentives for homebuyers. The credits cost $16.2bn in tax revenue, according to the Government Accountability Office in Washington. There is no plan to renew the benefits as Congress wrangles over budget cuts.

“The tax incentives are why we are seeing this triple dip in prices,” said Nariman Behravesh, chief economist of IHS Incorporated, a research firm based in Englewood, Colorado.

Source: Punch